Scotland's Brexit proposals: stand-off, independence or waiting game?

Kirsty Hughes, Senior Fellow at Friends of Europe, looks at the Scottish government’s new paper on its post-Brexit options. You can read her full discussion paper from November – ‘Scotland’s Choice: Brexit with the UK, Independence, or a Special Deal?’ by clicking here.

‘Scotland’s Place in Europe’, a paper presented by First Minister Nicola Sturgeon on 20 December, pushes for Scotland to stay in the EU’s single market even if the rest of the UK leaves. The paper sets out some clear tests for what she calls a “compromise” on Brexit – while maintaining that her preferred option is Scotland as an independent state inside the European Union.

The paper outlines some central demands for what should be in the UK’s ‘Article 50’ letter, signalling its intention to leave the Union: a request for the UK to stay in the EU’s single market and customs union – so a closer relationship even than that of Norway in the European Economic Area; a request for a clear transitional arrangement (between EU membership and full Brexit); and a statement that the UK wants to explore a differentiated solution for Scotland to stay in the EU’s single market even if the rest of the UK does not.

The Brexit approach of the British Prime Minister, Theresa May, is still unknown – but it is expected to involve seeking maximum access to, not membership of, the single market, while possibly staying in the EU’s customs union.

In that case, Sturgeon’s differentiated demand for Scotland (already rejected by the UK Chancellor, Philip Hammond) would come to the fore. Nicola Sturgeon knows that the focus of responses to her paper will be on her demand for a different deal for Scotland – one that falls short of independence.

But is it even possible for Scotland to be in the EU’s single market when the rest of the UK is not? And what is the real goal of the Scottish government’s paper – a springboard for a second independence referendum, a holding strategy while May’s Brexit approach becomes clearer, or a genuine goal of maximal differentiation?

Technical and legal challenges

The paper acknowledges there are major challenges in a differentiated approach that would keep Scotland, like Norway, part of the EU’s single market. Most, though not all, of these challenges come from the fact that Scotland is not a state, but a sub-state. Even as an independent state there would be many questions about the economic – and border – impact of Brexit by the rest of the UK (rUK) while Scotland stayed in the EU.

The best route to staying in the single market, according to the Scottish government’s paper, would be for Scotland to join the European Economic Area, having first joined the European Free Trade Association (EFTA).

This approach faces many big hurdles. The UK government would have to request it. Then either the UK asks to be an EFTA member but with EFTA rules only applying to Scotland – a very unlikely version of the ‘reverse Greenland’ model – or the UK asks for Scotland to join as a sub-state while rUK stays outside – just as the Faroe Islands made a request via Denmark (one that has received no response).

Both the EFTA and EEA treaties are open to European states, so it seems very likely that the Sturgeon proposals would fall at this rather major hurdle. It’s not impossible that a sub-state could be included, but it would require treaty change to both treaties. It would also require EU27 agreement (as signatories to the EEA treaty) and it would set a major precedent on sub-states that Spain and many other countries would be concerned about.

The paper admits that its proposals would require a massive amount of devolution. It also insists that, after Brexit, agriculture and fisheries powers remain with Holyrood rather than being ‘re-reserved’ by Westminster.

But one big step that is not taken is on trade policy. Instead, the goal is preferably for the whole UK to stay in the customs union with the EU, or failing that, for rUK and Scotland to be outside the customs union. This makes sense, since it avoids part of the ‘Irish challenge’ where Ireland will be in the EU’s customs union but Northern Ireland outside, depending on the final Brexit deal.

One major set of challenges with Scotland staying in the single market is that it may create a border between Scotland and England, and that it may introduce barriers into the pan-UK market. Regulatory and legislative challenges abound at this point.

If rUK diverges from EU regulatory frameworks while Scotland stays within them, this could create non-tariff barriers to goods and services traded within the UK. The paper suggests there may be ways around some of these problems, but the complexity is clear.

If the UK has to pay (and collect) tariffs on some of its exports to and imports from the EU, then how are no-tariff Scottish imports and exports to be distinguished from rUK ones, even in the same shipment of goods. The paper suggests a distinction based on final intended point of sale – something that rather points up the detailed complexity of managing such differentiation.

Differences in tariffs, in regulatory institutions, standards and judicial/supervisory mechanisms all create a major set of headaches that make ensuring an open pan-UK market with minimal bureaucratic processes rather unlikely even if a hard land border can be avoided.

How the UK and EU will manage regulatory divergence, mutual recognition, services trade and other issues will be central to Brexit talks. If Scotland were in the EEA, the EFTA Court would deal with any infringements of EU rules. But how would rUK show its goods met EU regulations, and how and to what extent could rUK services access the EU’s single market?

For the moment, the answers are unknown – other than the fact that, in the absence of adherence to the principle of free movement of people, the UK will not have the same full access it currently enjoys.

The Scottish government’s paper argues that a Scottish manufacturer, while being in the EU’s single market, could still trade freely across the UK – claiming ‘parallel marketability’. But this is a less-than-convincing solution to a complex challenge. Indeed, if Scotland were in the same position as Norway (in the EEA), it is worth noting that the UK will have to negotiate a new trade deal with Norway post-Brexit, since Norway won’t be part of the EU27-UK Brexit deal.

Under these plans, Scotland would respect the single market’s four freedoms, including free movement of people. This would require devolution of migration powers, and it would require ways to ensure that those people resident in Scotland but not elsewhere in the UK could prove residence and so enjoy free movement across the EU. This is an issue on which the paper provides little detail. But the paper is surely right in saying that, given the existing Common Travel Area, different migration policies across the UK need not require checks at inland borders.

Politics is central

It is noteworthy that in her emphasis on the EU’s single market Nicola Sturgeon is situated well within the narrow confines of the UK’s current Brexit debate. While the EU faces major challenges at and beyond its borders (Russia, Ukraine, refugees, climate change) and internally (terrorism, unemployment, inequality and more), the British debate is fixated on the benefits of the single market versus other trade relations.

In this narrow context – with Sturgeon rather quiet on the big ‘solidarity’ and strategic case for being in the EU (not the EEA) – what is likely to happen next?

The spotlight is now on Theresa May. The Prime Minister has said she will consider the Scottish government’s proposals. May could say ‘no’ very bluntly, as she effectively did in her October party conference speech. This would put Sturgeon on the spot in terms of her response, and whether or not to call an independence referendum. Or May could, at least, wait until February, when the UK government may finally present an outline of its plans to MPs at Westminster before triggering Article 50 in March.

At that point, May could quite likely say that she is aiming for maximum access to the single market, and might say she will ask for the UK to stay in the EU’s customs union. She may also say she will look at some particular Scottish interests. Nicola Sturgeon then would have a choice – to wait and see how Brexit talks develop, and how the opinion polls shift once Article 50 is triggered – or to say May has not met Sturgeon’s demands, and call an independence referendum.

Sturgeon is going to get little help from Scotland’s opposition parties apart from the Greens. In November the Liberal Democrats, despite their position of wanting the UK to stay in the single market, voted with the Conservatives against proposals for Scotland to have a differentiated deal. Labour abstained in November, but Labour’s shadow Brexit minister Keir Starmer – and leader Jeremy Corbyn – have made it clear Labour is aiming for access to, not membership of, the single market. So Labour support looks unlikely too.

Sturgeon’s paper is a serious in-depth piece of analysis. It respects the original post-referendum Scottish Parliament vote, by 92 votes to zero, to explore options for staying in the EU or its single market. The Scottish government has followed up, in-depth, on that vote – but the politics has moved on.

Scottish ministers’ many meetings with their EU counterparts have also involved hearing the message that while Scotland is part of the UK any request for differentiation has to come from the UK, as the (exiting) EU member state, and not Scotland. EU27 views on a flexible, sub-state proposal are likely to vary but it won’t be just Spain that will be concerned at setting a precedent for sub-states and regions.

A differentiated deal for Scotland looks highly unlikely. The paper sends the ball back into Theresa May’s court – but it will be back in Sturgeon’s very soon. Meanwhile, the EU27 will continue to wait for the Article 50 notification and for some real talks to start.